Thursday 10/31/2024
Super Micro Computer stock tumbled after the server maker said its audit firm, Ernst & Young, had resigned.
Super Micro disclosed the resignation in a securities filing, which included quotes from EY’s resignation letter from last week. EY said it had recently learned of information “which has led us to no longer be able to rely on management's and the audit committee’s representations, and to be unwilling to be associated with the financial statements prepared by management.”
Super Micro shares were down 33% in afternoon trading, at just under $33. The company said it “has taken the concerns expressed by EY seriously,” and that it has hired an outside law firm and a forensic accounting firm to investigate.
Super Micro said in August that it would be late filing its annual financial report, sending its shares plunging. That disclosure came a day after an activist short-selling firm, Hindenburg Research, published a critical report highlighting a former employee’s lawsuit against Super Micro that accused it of accounting violations.
Super Micro in its filing today said it doesn’t anticipate having to restate past financial statements. It previously said the short-seller report “contains false or inaccurate statements about our company.”
In September, The Wall Street Journal reported that the Justice Department was probing the company.
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Ernst & Young has resigned as the auditor for Super Micro Computer SMCI -32.68%decrease; red down pointing triangle
, saying it can no longer rely on management’s representations.
Super Micro disclosed the resignation in a securities filing on Wednesday, sending shares down nearly 31% to $34 in early trading. Shares are still up 20% year-to-date after surging with the bull market for AI-themed stocks this year, though well off a $122.90 record high from March.
EY bowed out while conducting an audit of Super Micro’s results for the fiscal year that ended June 30. The maker of server and computer products said it is looking for a new accounting firm to step in.
In an Oct. 24 letter to Super Micro, EY said it was “resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management’s and the audit committee’s representations.” The Big 4 accounting firm is unwilling to be associated with any financial statements that Super Micro management prepares, according to the company’s securities filing.
EY has also expressed concerns about the Super Micro’s board independence from Chief Executive Charles Liang and other members of management, according to the filing.
Super Micro said Wednesday that it doesn’t agree with EY’s decision to resign but takes its concerns seriously. The company plans to let EY respond fully to any inquiries from whatever firm becomes its next auditor.
Representatives for Super Micro and EY didn’t respond to requests for comment.
EY told Super Micro in July that it had concerns about the company’s internal controls over financial reporting, as well as the transparency and completeness of its communications with EY.
The firm said at the time that Super Micro may not be able to file its annual report on time. The company ultimately delayed the filing, saying in August that it needed more time to assess its financial reporting controls.
The delay was announced one day after short-seller Hindenburg Research said it found “glaring accounting red flags” at Super Micro, which makes servers used for generative artificial intelligence. The short-seller accused the company of allegedly engaging in “undisclosed related party transactions, sanctions and export control failures.”
EY earlier this year said it was cutting ties with many U.S. public companies in a move to revamp its auditing practice and improve the quality of its work. EY has dropped dozens of clients since the start of last year, including drugmaker Catalent and hydrogen truck maker Nikola.
The firm is walking away from Super Micro about a month after The Wall Street Journal reported that the Justice Department is probing the company, seeking information apparently connected to a former employee who has accused Super Micro of accounting violations and filed a whistleblower lawsuit.
Super Micro paid $17.5 million in 2020 to settle Securities and Exchange Commission’s allegations of widespread accounting violations. The company neither admitted nor denied the SEC’s accusations. The agency also required Liang to reimburse Super Micro for $2.1 million in stock-sale profits, though it didn’t accuse the CEO of misconduct.
Super Micro is slated to report quarterly results Nov. 4. The company’s most recent report from August showed that revenue doubled in its fiscal fourth quarter due to strong demand for AI infrastructures, though the figure still fell short of analyst estimates.